County council, DELCORA make a splash in court fight

MEDIA COURTHOUSE » Attorneys representing Delaware County Council and the Delaware County Regional Water Quality Control Authority on Thursday laid out a road map of issues to work through surrounding council’s attempt to block a pending authority sale to Aqua Pennsylvania Wastewater Inc.

Common Pleas Court Judge Barry Dozor said there seems to be two main prongs that need to be addressed: Delaware County’s complaint that a trust was illegally created to take in sale proceeds as part of a “rate stabilization plan” under the $276.5 million merger, and a pair of cross-injunctions filed by both parties concerning DELCORA’s termination under a county ordinance adopted June 3.

The complaint claims that the previously Republican-controlled county council voted in December to amend DELCORA’s articles of incorporation and grant it the ability to establish a trust “to exist for the benefit of rate payers to distribute to rate payers some or all of the proceeds received from any transfer and sale” of the authority’s assets.

The trust was created between DELCORA and Univest Bank Co. as trustee on Dec. 27, 2019, according to the complaint. While the stated purpose of the trust was to benefit DELCORA’s rate payers, the suit indicates one section explicitly states that distributions from the trust will go to Aqua, not rate payers directly.

Because the trustee has no authority to make any distributions without direction from DELCORA, the complaint asserts, it would essentially be used as a conduit for the distribution of public money to Aqua. A later amended complaint also seeks to block any assets from being transferred into the trust, county council attorney Carol Steinour Young said Thursday.

Current county council members, now all Democrats, claim the move to amend DELCORA’s bylaws and establish the trust was politically motivated so the sale could go through and benefit Republican Party members and donors.

Aqua and DELCORA assert that the sale is only intended to stave off approximately $1.2 billion in expected new costs over the next decade and that the trust would act as a fund to keep increases pegged at just 3 percent for ratepayers instead of an expected 10 percent.

While the complaint was pending in court, council adopted the June 3 ordinance directing DELCORA to wind up operations; transfer its assets, funds and liabilities to the county; and halt the authority from taking any actions or spending any money that is not in connection with effectuating the ordinance.

The ordinance directed the authority to “remove any impediments to its termination,” and approve, execute and deliver a “certificate of termination” to the county by Thursday. That prompted DELCORA to file a petition to stay the ordinance and an injunction against its enforcement.

The county this week filed its own injunction seeking to block DELCORA from creating any additional impediments to termination, such as taking on new debt, executing any contracts that are not required to operate the system, providing any bonuses or pay raises to any member of the executive team.

The authority argues that the county is ill-equipped to take over DELCORA and will have to pass several regulatory and financial hurdles before it can do so. Among them is satisfying $171 million in outstanding bonds when the authority only has $104 million cash in hand, said DELCORA attorney Nicholas Poduslenko.

Young argued that there seems to be some disconnect from DELCORA’s point of view. If the sale could go through to Aqua and the authority’s assets be transferred there without issue, she said, then they can just as easily go to the county through a dissolution.

Regardless of the suit and ordinance, both DELCORA and Aqua have stated that they believe the sale agreement is still enforceable and they intend to go through with the merger. Aqua has also petitioned the court to intervene as a party to the suit.

Young said she would need to consult with her clients on Aqua’s petition and Dozor gave her until June 25 to file a response.

Poduslenko and Young indicated they would work toward trying to come to a stipulated agreement on the injunctions rather than litigate them, which would allow the authority to continue providing services to its ratepayers without interruption as the court proceedings go on. That could be filed as early as next month, if an agreement can be reached. Dozor said the existing status quo would remain in place until then.

Both attorneys also anticipate conducting some limited discovery and possibly taking depositions on the trust issue, and requested a hearing date sometime in August.

Dozor explained that court time slots are somewhat limited at the moment due to COVID-19 concerns, but would let the attorneys know when the next hearing could be scheduled.

“DELCORA is pleased with the outcome of today’s hearing because it continues to protect ratepayers,” spokesman Jay Devine wrote in an emailed statement. “It was quickly apparent that the Delaware County Council had neither a plan nor understood the necessary legal and financial implications of its dissolution vote. DELCORA will continue to operate as the legal stay remains in place. DELCORA will continue to fight for its right to establish a Customer Trust Fund to offset future rate increases under the county council’s plan.”

“There were no surprises at today’s hearing, and the county council remains committed to terminating DELCORA and returning its assets to their rightful owners: The people of Delaware County,” said county council spokesman Jeff Sheridan. “Politics and patronage should never come before the hardworking men and women of Delaware County, and council members look forward to communicating their position to the court.”